Agri Insights - CommBank€¦ · · 2018-03-27Welcome to our sixth Commonwealth Bank Agri...

Agri InsightsUnderstanding Australian farmers’ intentions for the coming 12 months

October 2016

Contents

Key Insights 3Commodities Overview 4National Analysis 6Topical Insights - National 15State by State Analysis 18Topical Insights - State 26Methodology 31

Key Insights

Welcome to our sixth Commonwealth Bank Agri Insights report. I’m pleased to say we’re seeing some of our strongest results to date, with farmers intending to increase investment across the majority of aspects in their operations.

Nationally, the Agri Insights index is sitting at 10.2 points, our second highest index to date. This is underpinned by robust producer intentions particularly across the financial and physical aspects of farming.

In our most recent survey we asked Australian farmers about digital technology and their attitude to data sharing, a ripe topic of discussion in this new age of agtech.

We sought farmers’ views on the value of using digital technology in their farming operations and sharing their data among their farming peers. What we learned is that farmers are quite open to sharing data, seeing themselves less as competitors, and more as part of an ecosystem that works together to stay competitive on a global scale.

This year, we’ve seen the Australian agriculture sector ride some highs and some lows, from challenges around dairy pricing, to abundant rain in many states. The data represented in this report was collected prior to the recent adverse weather conditions which farmers have been experiencing. Throughout all this, our farmers are focused on the future.

At Commonwealth Bank, we have been supporting regional communities and the agribusiness sector for over 100 years, and our track record is one of genuine commitment to regional communities and long term partnership with customers.

We hope this report is a useful reflection of the Australian agriculture sector, and that the information serves you well.

Tim Harvey Acting Executive General Manager Regional and Agribusiness Banking Commonwealth Bank of Australia

3

Agri InsightsOctober 2016 (Wave 6 FY16)

Commodities OverviewTobin Gorey, Director for Agri Commodities Strategy

CottonCotton producers continue to have fairly strong intentions to expand. Their expansion is largely concentrated in areas outside the traditional growing regions – areas in which they can now access irrigation water. Cotton is also now offering better revenues. Global prices are about 20% above their May 2016 lows.

Sugar CaneAustralian canegrowers have become a little less upbeat of late, despite higher global sugar prices. Parts of Queensland received heavy rain in June and July which delayed crushing and reduced sugar recovery rates. The resulting lower expected cash flow this season has probably seen expansion plans put on hold for now. Some ongoing uncertainty around industry structure is also likely weighing on growers’ minds.

DairyThe global dairy market is now on the road to recovery following several seasons of low farmgate prices. The Australian dairy industry probably only felt the full impact of that downturn from mid-2016. Consequently fewer dairy producers are now thinking of expanding. Encouragingly though, there has not been much of a material shift towards contraction - a sign perhaps of longer-term confidence in their industry.

Summer GrainSummer grain growers indicate modest industry expansion. Growers can capitalise on stronger moisture profiles. And some might potentially have higher water allocations this season. Export prospects look a little better given the lacklustre results of China’s reserve grain auction sales. A larger Australian winter harvest though will add more comfort to feed availability and place downward pressure on summer grain prices.

HorticultureHorticulturists continue to have expansionary intentions. Around a fifth plan to expand operations on the back of a generally good growing season. That optimism persists despite continued uncertainty around the government’s proposed backpacker tax.

Winter GrainAustralia is looking at a bin-busting winter grains harvest for 2016. Much larger Australian wheat, barley and canola crops will add to already very comfortable global supplies. Wheat and feed prices have dropped to multi-year lows as a result.

BeefProducers are rebuilding herds after a prolonged period of liquidation. Good rains in swathes of dry pastoral country have unleashed these long-held plans, and the recent run of high cattle prices will have improved many producers’ cash flow positions. As a result, Australian beef producers continue to have very strong expansionary intentions.

LambAustralian prime lamb enterprises will continue to expand modestly over the next 12 months. Strong prices throughout winter have likely buoyed restocking intentions. Export demand remains robust, though a now modestly higher Australian dollar does pose some downside risk. Lamb is an expensive protein, so consumers may trade down to cheaper meat alternatives.

WoolThe Australian wool industry by and large remains in a phase of consolidation. While global wool supplies are now much tighter, retail demand remains somewhat subdued. Modest consumer confidence in richer countries generally suggests modest growth in purchases of discretionary items like woollen clothing. Nonetheless, the Australian 2016-17 selling season has opened strongly, which may encourage some additional production.

5

National Analysis

What Farmers Plan for the Coming YearThe research explores 14 areas of managing an agribusiness, across the physical aspects (including production scale and land size), financial investment intentions, and people aspects (regarding people working in and for the farm business). The results are used to develop physical, financial and people indices as well as an overall Agri Insights index.

7


Oct-15 May-16 Oct-16 WOW YOY

Physical 10 11.1 12.4 1.2 2.4

Financial 12.2 11.1 11.8 0.7 -0.4

People 7.5 6.3 6.3 0 -1.2

WOW- Wave on Wave. YOY- Year on Year.

Physical Investment IntentionsPhysical investment intentions across the majority of sectors continue to be strong. Fixed infrastructure and plant and equipment investment intentions are the strongest they have been since the inception of the Agri Insights survey.

Q. Where do farmers intend to focus their investment for their land, equipment and farm infrastructure for the next 12 months?

8


Fixed infrastructure

32%

36%

Plant and equipment

23%

25%

Area of land

4%

5%

Physical: Land infrastructure

May-16 Oct-16

Investment intentions have strengthened among cotton, beef, lamb, summer grain and wool producers, while horticulture investment intentions are at their highest level to date.

October-16 May-16

19%

10%

Horticulture

18%17%

Cotton

14%

12%

Beef Cattle

10%

0%

Summer Grain

4%

7%

Winter Grain

4%

-2%

Sheep for Wool

14%

9%

Sheep for Prime Lamb

Physical Investment Intentions

Dairy

1%

11%

-3%Sugar Cane

11%

Q. What proportion of farmers intend to increase or decrease production over the next 12 months?

9


Physical Investment: How CommBank can help with the physical aspects of farmingCommBank can help you finance the equipment and infrastructure you need to optimise your business, and provide insights and solutions that will help you generate the best returns from your operations.

• Commodity inventory finance – unlocking value from grain inventories

• Solutions for improving efficiency

• Short-term working capital and flexible long-term loans

• No deposit and fixed interest equipment finance

• Strategies for hedging commodities

• Analysis of industry trends

• Trade finance to bridge cash flow gaps

10


Financial Investment IntentionsFinancial investment intentions for Australian farmers remain positive, with investment in farm technology and innovation high on the agenda.

Q. Where do farmers intend to focus their investment for financial aspects of their operations over the next 12 months?

Investment in farm technology/innovation

Off farm investments

Off farm employment

May-16 Oct-16

2%

11%

20%

22%

13%

0%

11


Financial Investment: How CommBank can help with the financial aspects of farmingEnhanced cash flow and smart money management are vital to agribusiness success. CommBank can help you manage costs, minimise your risks and sustain your business through unpredictable seasons.

• Insights on input cost management

• Personalised advice on growth strategies

• Access to alternative funding sources

• Strategies for managing working capital

• Business and property insurance

• Tax effective asset finance options

• Advanced exchange rate lock in

• Commodity price risk management

12


People Intentions

Australian farmers’ intentions around involving their family members in their businesses are steady, but farmers themselves are somewhat more likely to reduce their own involvement in their farming operations for the next 12 months.

Intentions around the engagement of contractors and consultants are still positive, but have eased from this time six months ago. Education and training remains a priority for Australian farmers.

Farmers and outside resources: national

Q. What are farmers’ intentions for the people aspects of their operations over the next 12 months?

Farmers, family and employees: national

13


Other family involvement

Number of employees

Your involvement

May-16 Oct-16

8%

9%

5%

3%

-3%

-1%

Education/training

Use of contractors

Use of consultants

May-16 Oct-16

15%

15%

5%

5%

8%

6%

People Intentions: How CommBank can help with the people side of farmingPeople are at the heart of agribusiness. CommBank helps you make the most of your most valuable resource through training and recognition programs and involvement with the communities you live and work in.

• Working with skills and education providers

• Working with industry bodies

• Advice from industry experts

• Sponsorship of community events and field days

• Host community business forums

• Recognise the achievement of community leaders

• Mentor women through the Women in Focus program

• Share business intelligence and commodity market updates

14


National Topical Insights

Topical Insights: Digital Technology and Data Sharing

Farmers believe digital technology adds significant value to Australian farming operations, but the majority like to let others try the latest technology before they invest.

Most Australian farmers share their on-farm production data with others, with a significant majority believing there is value in sharing.

I like to let others try new forms of digital technology before I invest in it

I don’t see currently share my on-farm production information with others

I am generally one of the first farmers in this area to use new digital technologies

I currently share on-farm production with others

70%30%

78% 58%22% 42%

I don’t see much value in using digital technology to run my farm business

I don’t think there is any value in sharing my on-farm production information with others

I believe that the digital technology available adds significant value to my operations

I think that there is any value in sharing my on-farm production information with others

Statement A Statement A

Statement B Statement B

Digital technology Data sharing

Q. For each of the following pairs of statements, which statement A or B best describes your own approach to managing your farm business?


16


76%24%

Topical Insights: Digital Technology and Data Sharing

Farmers who see value in sharing their farm data with their peers cite learning from each other, benchmarking and supporting the industry as their main reasons for sharing.

Privacy is the main concern for Australian farmers who don’t see value in data sharing.

Q. Why do you say there is value in sharing your on-farm production information with others?

Q. Why do you say that there is no value in sharing your on-farm production information with others?

49% 28%

17% 13%

26% 17%

Learn from other farmers

Benchmarking Reciprocation, benefits all involved & industry

Privacy Issues

Farm too small/difficult to compare

I don’t care what others are doing

17


A State by State Analysis

New South WalesIndex 11.4* (-0.6 from Wave 5)

The New South Wales Agri Insights index is positive, currently ahead of the national index, but slightly down since this time six months ago.

New South Wales farmers are keen to use farm data to improve their own businesses and to share learnings with other farmers, but some say they are uncertain how to use the data they collect.

Capital improvement is also an area of focus for farmers in New South Wales. They are among the most likely in the country to invest in both fixed infrastructure and plant and equipment across their farming operations.

VictoriaIndex 6.4* (-1.2 from Wave 5)

Victorian farmers’ investment intentions continue to ease. The index reflects a tougher period for the state, but is still notably positive.

Investment intentions remain positive across most measures, particularly around capital investment and education, speaking to a longer term focus for Victorian farmers. There is also an upward trend for farmers in Victoria around investment in training and education.

Farmers in Victoria are also among the most likely to say they are early adopters of new digital technology, and also the most likely to see it as a source for benchmarking their data.

* For more information on how this index is scored, please refer to the methodology on page 31.

19


South AustraliaIndex 14.1* (+2.6 from Wave 5)

The overall Agri Insights Index for South Australia currently sits at 14.1, the highest index the state has seen to date, underpinned by record-high intentions across several measures.

Farmers in South Australia recognise the value digital technology can bring to their operations and are happy to share their data with others.

South Australian farmers are three times as likely to say they’ll hire more staff and twice as likely to hire more contractors compared to the national average, signalling employment opportunities in the South Australian agri sector.

QueenslandIndex 10.5* (+4.7 from Wave 5)

The latest Agri Insights Index for Queensland is currently 10.5, slightly ahead of the national index and a significant recovery compared from the index six months ago.

Queensland farmers think digital technology adds value to their operations, and they’re happy to share their data, especially because they see it as a way to learn.

As conditions improve in parts of Queensland, farmers in the state are starting to reinvest in their farms, with a particular focus on technology and plant and equipment.

20



Western AustraliaIndex 13.3* (+4.6 from Wave 5)

Western Australian farmers’ investment intentions have strengthened over the past six months, with the index 3.1 points above the national average. This is underpinned by positive investment intentions across almost every measured element.

Western Australian farmers are the most eager in the country to acquire more land, but they’re also the most likely to invest off farm. Their intentions around employee numbers have also firmed in the past six months, sitting above the national average.

There is also a continued focus on technology investment within their farming operations, particularly fixed infrastructure and farm technology.

TasmaniaIndex 12.8* (-1.0 from Wave 5)

The latest Agri Insights Index for Tasmania is 12.8, continuing a trend of above-average results despite easing somewhat since the last index was released. The strong index is underpinned by positive intentions around the physical aspects of farm operation.

Tasmanian farmers continue to display a strong appetite for technology investment, and they see digital technology as a valuable contributor to their operations.

21



Physical Investment Intentions: Land and infrastructureFarmers in Western Australia are the most likely to increase their area of land over the coming 12 months, while those in New South Wales and South Australia are leading the nation when it comes to fixed infrastructure and plant and equipment intentions.

Your area of land

Nat

TAS

WA

SA

QLD

VIC

NSW

Plant and equipment

Nat

TAS

WA

SA

QLD

VIC

NSW

Fixed infrastructures (sheds,fences,dams etc)

Nat

TAS

WA

SA

QLD

VIC

NSW

5%

11%

25%27%28%29%

29%

36%37%

33%42%

42%

32%30%

26%15%

9%5%

3%5%

Q. Where do farmers intend to focus their investment for their land, equipment and farm infrastructure for the next 12 months?

22


1%

Financial Investment IntentionsFarm technology and innovation is high on the agenda of farmers across the nation, especially those in South Australia and Western Australia. Tasmanian farmers are the most likely to be increasing off-farm employment in the coming 12 months.

Investment in farm technology/innovation

Nat

TAS

WA

SA

QLD

VIC

NSW

Off farm investments

Nat

TAS

WA

SA

QLD

VIC

NSW

Off farm employment

Nat

TAS

WA

SA

QLD

VIC

NSW

20%24%

27%28%

22%11%

21%

13%9%

9%11%12%

16%

2%5%

3%

3%

4%0%

0%

19%

Q. Where do farmers intend to focus their investment for financial aspects of their operations over the next 12 months?

23


People Intentions: Farmers, family and employeesTasmanian and New South Wales farmers are the most likely to say they will increase their own involvement in their operations over the coming 12 months, with South Australian farmers looking to offset their work by increasing the number of employees and other family members involvement.

Your involvement in the farm business

Nat

TAS

WA

SA

QLD

VIC

NSW

Other family involvement in the farm business

Nat

TAS

WA

SA

QLD

VIC

NSW

Number of employees

Nat

TAS

WA

SA

QLD

VIC

NSW

9%10%

11%9%

3%

3%

6%8%

10%4%

-3%

8%13%

5%

-1%

-2%-5%

1%

0%-1%

1%


24


People Intentions: Farmers and outside resourcesIntentions suggest that Victorian and South Australian farmers consider investment in education and training important for their operations, while South Australian, Tasmanian and Queensland farmers are all looking at increasing the involvement of outside consultants within their operations over the coming 12 months.

Use of outside consultants/advisors

Nat

TAS

WA

SA

QLD

VIC

NSW

Use of contractors

Nat

TAS

WA

SA

QLD

VIC

NSW

Any further education or skills training you may undertake

Nat

TAS

WA

SA

QLD

VIC

NSW

5%7%

3%9%

6%4%

6%6%

8%

4%2%

8%

15%16%

14%

14%

14%17%

17%

10%

4%


25


State by State Topical Insights

Digital Technology and Data SharingSouth Australian farmers believe that digital technology adds significant value to their operations, while Western Australian and Victorian farmers are among the most likely to say they are the first to use new digital technologies in their area.

A. I like to let others try new forms of digital technology before I invest in it

Nat

TAS

WA

SA

QLD

VIC

NSW

B. I am generally one of the first famers in this area to use new digital technologies

B. I believe that the digital technology available adds significant value to my operations

Nat

Nat

TAS

TAS

WA

WA

SA

SA

QLD

QLD

VIC

VIC

NSW

NSW

78%79%

81%79%

76%

76%

79%

70%66%

74%77%

66%70%

69%

22%21%

21%

21%

24%

24%

19%


A. I don’t see much value in using digital technology to run my farm business

Nat

TAS

WA

SA

QLD

VIC

NSW

30%34%

26%23%

34%30%

31%

27


A. I don’t currently share my on-farm production information with others

Nat

TAS

WA

SA

QLD

VIC

NSW

B. I think that there is any value in sharing my on-farm production information with others

Nat

TAS

WA

SA

QLD

VIC

NSW

42%

42%

42%

42%47%

34%

43%

76%78%

77%83%

75%73%

76%

B. I currently share my on-farm production information with others

Nat

TAS

WA

SA

QLD

VIC

NSW

58%

58%66%

57%

58%53%

58%

The majority of Australian farmers in every state see value in sharing farm data, particularly in South Australia and Tasmania. South Australian farmers are the most likely to be currently sharing their farm data with their peers.


A. I don’t think there is any value in sharing my on-farm production information with others

Nat

TAS

WA

SA

QLD

VIC

NSW

24%22%23%

17%25%

27%24%

28


Digital Technology and Data Sharing

Queensland farmers are the most likely to see sharing data as a way to learn from each other, whereas Victorian farmers are more likely to cite benchmarking as a reason to share. Farmers in Western Australia are the most likely to cite privacy issues as the reason they prefer to not share their data.

29


Q. Why do you say there is value in sharing your on-farm production information with others?


Learn from other farmers

Nat

TAS

WA

SA

QLD

VIC

NSW

Benchmarking

Nat

TAS

WA

SA

QLD

VIC

NSW

Reciprocation, benefits all involved and industry

Nat

TAS

WA

SA

QLD

VIC

NSW

49%37%

55%

26%29%

27%27%

20%

17%12%

16%18%

19%

15%16%

23%33%

52%58%

38%51%

30


Q. Why do you say that there is no value in sharing your on-farm production information with others?


Privacy issues

Nat

TAS

WA

SA

QLD

VIC

NSW

Farm too small/different to compare

Nat

TAS

WA

SA

QLD

VIC

NSW

I don’t care what others are doing

Nat

TAS

WA

SA

QLD

VIC

NSW

28%16%

45%

17%20%

5%17%

11%

13%13%

20%23%

14%

9%11%

28%19%

44%17%

30%25%

Methodology

Methodology

Agri Insights canvasses 1,600 Australian farmers about their intentions for their farm enterprise over the coming 12 months.

We spoke to a representative sample of rural producers across Australia. Fieldwork was executed by Fairfax Agricultural Research and Marketing using its database of more than 100,000 rural producers, and the research was managed by Kynetec, one of the world’s largest research organisations. Calls were conducted in July and August 2016.

What does the index mean?

The index is a relative number that indicates whether investment intentions overall are in the positive region or negative region. It can be used to track the direction and degree of change in investment intentions but cannot be used to extrapolate specific information about the number or proportion of farmers intending to increase (or decrease) investment. The index is designed to simply illustrate the findings of the survey and allow for tracking of intentions over time.

How the index is calculated:

• The net change for each variable in the survey is calculated by subtracting % decrease from % increase

• Individual indices (physical index, financial index and people index) are calculated by averaging the net change for all variables within each category. The physical index at a national level includes all enterprise types. At a state level, the physical index includes enterprises relevant to that state and excludes enterprises where the populations were very small (e.g. sample <10)

• The overall index is the average of all three indices

NSW

SA

VIC

Male

WA

QLD

Female

TAS

12%

10%

3%

25%

76%32%

32%

23%

10%

3%

24%

32%

18%

26%

37%

16%21%

<399 400-799

800-1999 2000+

65 and over

45-54

25-34

55-64

35-44

Farm sizeState

AgeGender

32


Talk to us

Contact your Regional and Agribusiness Banking Relationship Manager.

Visit commbank.com.au/agribusiness Call 1300 772 968

24 hours a day, seven days a week.

Things you should know: The report is published solely for information purposes and is not to be construed as advice or recommendations. This report has been prepared without taking account of the objectives, financial situation and capacity to bear loss, knowledge, experience or needs of any specific person who may receive this report. All recipients, before acting on the information in this report, should consider the appropriateness and suitability of the information, having regard to their own objectives, financial situation and needs, and, if necessary seek the appropriate professional or financial advice regarding the content of this report. The Bank believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice. The Bank is under no obligation to, and does not, update or keep current the information contained in this report. Any projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. Different assumptions and estimates could result in materially different results. This report makes reference to data sourced from Kynetec, current as at October 2016. All analysis and views of future market conditions are solely those of Commonwealth Bank. The Bank does not accept any liability for any loss or damage arising out of the use of all or any part of this report.

Commonwealth Bank of Australia ABN 48 123 123 124. AFSL and Australian Credit Licence 234945.

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